[REN 794] Real Estate: Investors Defrauded in Indianapolis

Picture of Indianapolis for Real Estate News for Investors Podcast Episode #794

Legal troubles continue for former Fox and Friends host, Clayton Morris, but is he grabbing headlines because he did something wrong, or because of his celebrity status? Investors claim that Morris and business partner, Bert Whalen, sold them run-down homes that they promised to renovate but didn’t. The latest headlines are another blow to Morris — that his real estate business is under investigation by the FBI and two states. (1)

Morris quit Fox two years ago to focus on his real estate business, Morris Invest. He has a podcast where he educates people about how to obtain financial freedom with rental properties. He also helps monetize the business by selling rental properties in different markets across the country. He has teams in place to renovate and manage the properties for new landlords who don’t live in the area. It sounds like our own RealWealth, but in this case, many of the investors who bought properties in Indianapolis are very unhappy with the results.

Trouble for Ex-Fox News Host

The trouble began last spring with headlines like, “An Ex-Fox News Host Pitched Financial Freedom. His Clients Want Their Money Back.” (2) And many of them are doing that in court, with lawsuits. In the midst of the turmoil, Morris and his wife, Natali, decided to move out of the country with their kids. They moved to Portugal, where they say they continue to deal with their legal problems. But, the move sparked criticism and more nasty headlines about Morris “fleeing” the U.S. Newsweek also mentioned the “P” word for Ponzi scheme in reference to Morris Invest.

Morris told his side of the story in a lengthy statement back in March. He says, he had been working with Whalen of Oceanpointe Investments for years to build his own personal portfolio. When he cut the cord with Fox in 2017, and launched his own real estate investment business, he formalized an agreement with Oceanpointe to find, renovate, and manage rental properties in the Indianapolis market. He felt it was a good partnership because of the track record they had together, but then the complaints began about poor property management.

Morris responded by forming his own property management company in 2018. But that didn’t put an end to the problems. He then began to hear complaints from contractors saying that they hadn’t gotten paid for renovation work. Morris Invest was told that rehabs would be put on hold until until more investors were referred to Oceanpointe for property sales.

Here’s what Morris said about that:

“This was the moment that stopped us in our tracks. They had ALREADY BEEN PAID for these rehabs. Where had the money for these rehabs gone? We did not know what was happening but we knew enough to know that we could not refer them any further investors if they were planning to use future profits to recover previous losses.” That’s called a Ponzi scheme, as you know…

Morris says that contractors were clamoring for their money and that he and his wife depleted their savings to pay $350,000 in outstanding contractor bills that Whalen’s company was responsible for. Morris says they ended their relationship with Oceanpointe and have been dealing with the aftermath ever since. At first, Morris thought the problem was due to poor property management, but upon further investigation, he discovered that contractors hadn’t been paid. And upon further investigation, he discovered that only about 60% of the rehabs had been completed.

Three Major Investigations

Fast forward to today. In addition to investor lawsuits, there are now three major investigations underway. The New York Times says, federal agents are interviewing investors and associates of Morris including his former business partner. Meanwhile, Morris’ wife has been posting blogs about their situation and how poorly they’ve been represented in the press.

Her latest one is called “Fleeing the Country” which she says is ridiculous because they are not running away from anything. She says, they moved to Portugal to help improve the family’s emotional well-being in the midst of the allegations, but they are also handling the lawsuits from there. She says, her husband has been given a disproportionate amount of blame because he has “some residual fame from his former career as a news anchor.”

What Are We to Learn of All This?

First of all, I had the opportunity to speak with Clayton Morris several years ago. I found out that most of the properties his company was selling were C and even D class properties. I remember asking him how that was working out, and he said something to the affect that it was going great because cash flow is better in lower income areas.

While that may be true on paper, I have found it doesn’t work out as well in reality. Lower income areas tend to have higher crime. Higher crime means that tenants might move more frequently, increasing turnover costs.  And if the neighborhood is really bad, you may have the contents of your home stolen. Just when you thought you had the home renovated, you find out it’s empty — even down to the toilet and fixtures.

I mentioned that to him and he said it wasn’t the case for his team. I was surprised but figured he knew something I didn’t. Some people are able to manage C and D class properties — usually if they live right there and can monitor the situation carefully.

At RealWealth, we do not encourage investors to buy lower-end properties. The maintenance costs are just too high and they end up eating away all the cash flow.

Lesson #1 — Investors need to understand the neighborhood. You can fix a house but you can’t so easily fix a neighborhood. And even if the area is supposedly “up and coming,” it could take years for it to come up.

Lesson #2 — Never pay for renovations in advance. Anytime you pay for work before it’s done, you can be sure it won’t get done. Only pay a deposit to a contractor, and then make further payments once the work is done.

Lesson #3 — If you are buying a home that is “turnkey,” which means someone else is making it rent ready for you, don’t send any money to the seller directly. Send it to an escrow account. This way you can get inspections and appraisals done before closing on the property.

Lesson #4 — And finally, it’s your money. Be careful who you give it to. At the end of the day, these investors will spend their money suing Morris Invest, but will likely come out empty handed.

I just went through this. An investor at RealWealth was upset that rents didn’t come in at the amount that was quoted by the property manager. So they sued everyone for lost rents — the property manager, the realtor and RealWealth. It ended up costing each of us about $150,000 to defend ourselves. Finally, a week before trial, the judge told the plaintiff that they didn’t stand a chance. So they decided to not spend more money and called off the trial. It costs over $450,000 for the various parties.

So even if it had been a legitimate case, the chances of them winning were slim. The legal system isn’t really set up to protect investors. It’s set up to protect consumers. Investors should be doing their homework. And even when homework is done, there is always the risk of loss. All investments come with risk. You don’t see people suing their stock broker when stock values fall. But they do with real estate for some reason.

It’s your money. Take care of it and don’t blame anyone else for choices you make. Those unhappy investors with Morris Invest should have known what they were buying. One visit and they would never have pulled the trigger.

Visit your properties in person. Meet the management team that will be taking care of your properties. Talk to the neighbors to see what they have to say about the area. Talk to other investors in the same market.

In this case, Morris may or may not be directly responsible for what happened but maybe there are things he could have done to safeguard himself and his clients.

RealWealth Safeguards

Here’s a few things we do at RealWealth to help safeguard investors.

1 – Strict vetting process of property teams

2 – Lots of education, so investors know how to do their due diligence before buying

3 – Masterminds with the property teams so they can help each other raise the standards

4 – Encourage members and RealWealth Employees to always visit markets and see the properties they are buying

5 – Perform inspections and order appraisals before closing

Links:

(1) NYT Article

(2) Early Headlines

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